Iran’s recent attack on Israel serves as a reminder that geopolitical events can jolt markets without warning. Despite minimal threats to oil supplies, markets have already shown some risk-off moves.
While these reactions could reverse, the risk of escalation remains.
Regardless of how the situation unfolds now, your portfolio should be prepared for geopolitical risks. It’s not just about reacting to headlines, but positioning yourself for both immediate market volatility and long-term impacts.
In this increasingly fragmented world, staying strategically prepared is essential.
Core sectors for geopolitical resilience
AI & Semiconductors: The race for technological dominance is accelerating, and AI will be at the heart of global power struggles. Invest in the future by considering, stocks like NVIDIA (NVDA), Advanced Micro Devices (AMD), ETFs like VanEck Semiconductor ETF (SMH), iShares Semiconductor ETF (SOXX) and others.
Defense: As tensions rise, defense budgets are expanding, and the need for cutting-edge military technology is critical. Saxo’s Defence Equity Theme provides some inspiration, and investors can solidify exposure with ETFs like iShares U.S. Aerospace & Defense ETF (ITA), SPDR S&P Aerospace & Defense ETF (XAR).
Cybersecurity: In a world where cyber warfare is just as threatening as physical conflict, cybersecurity will be the cornerstone of national defense and corporate safety.
Also consider stocks like Palo Alto Networks (PANW), CrowdStrike (CRWD) and ETFs like First Trust Nasdaq Cybersecurity ETF (CIBR), Global X Cybersecurity ETF (BUG).
Renewable Energy: As nations aim to reduce their dependence on vulnerable fuel sources, renewable energy emerges not only as an environmental solution but as a matter of national security.
Strengthen your portfolio with stocks like NextEra Energy (NEE), Enphase Energy (ENPH), ETFs like iShares Global Clean Energy ETF (ICLN), Invesco Solar ETF (TAN) and others.
Strategic Equity Sectors for Long-Term growth
While geopolitics drives short-term volatility, one needs to be prepared for the long-term impacts that geopolitical risks can have on markets. In an increasingly interconnected world, geopolitical risks are constant—and your portfolio should be ready for them.
The sectors which are poised to deliver strong, sustained returns over the long run. Consider a strategic allocation to, health Care, iShares Healthcare Innovation ETF (HEAL), Health Care Select Sector SPDR (XLV).
Technology Select Sector SPDR (XLK), Vanguard Information Technology (VGT), financials: Financial Select Sector SPDR (XLF), iShares Global Financials (IXG), energy: ETFs like United States Oil Fund (USO), Energy Select Sector SPDR (XLE)
Essential portfolio safeguards
During periods of geopolitical unrest or heightened volatility, incorporating safe havens into your portfolio can provide resilience and serve as a buffer against both conflict and inflation. A safe-haven asset is a financial instrument that is expected to retain, or even gain value during periods of economic downturn. These assets are uncorrelated or negatively correlated with the economy as a whole, which means that they could appreciate in the event of a market crash.
Key safe havens to consider includes, Gold: SPDR Gold Shares (GLD), iShares Gold Trust (IAU) and short-term and inflation-protected bonds: iShares TIPS Bond ETF (TIP), Vanguard Short-Term Bond ETF (BSV).
Defensive stocks and ETFs: Stocks like Coca-Cola (KO) or Procter & Gamble (PG) or ETFs like Utilities Select Sector SPDR (XLU).
Currencies: US dollar (Betashares US Dollar ETF), Japanese yen (Invesco CurrencyShares Japanese Yen Trust ETF) or Swiss franc ((Invesco CurrencyShares Swiss Franc Trust ETF), or cash or cash equivalents: Money market funds.
Why it’s crucial
In an era where geopolitical shocks are a constant threat, positioning your portfolio for resilience isn’t just smart—it’s essential. By strategically allocating to these sectors, stocks, and ETFs, you’re not only safeguarding against risk but also positioning yourself to capitalize on the opportunities that arise in a volatile world. Don’t wait for the next crisis—be prepared for it.
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